sup-10q_20200331.htm

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

	Three Months Ended
	March 31, 2020			March 31, 2019
NET SALES	$	301,112		$	357,693
Cost of sales		277,951			324,571
GROSS PROFIT		23,161			33,122
Selling, general and administrative expenses		12,535			14,483
Impairment of goodwill and indefinite-lived intangibles		193,641			—
INCOME (LOSS) FROM OPERATIONS		(183,015	)		18,639
Interest expense, net		(11,850	)		(11,873	)
Other income, net		1,323			127
CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAXES		(193,542	)		6,893
Income tax benefit (provision)		3,460			(4,943	)
NET INCOME (LOSS) ATTRIBUTABLE TO SUPERIOR	$	(190,082	)	$	1,950
LOSS PER SHARE – BASIC	$	(7.84	)	$	(0.24	)
LOSS PER SHARE – DILUTED	$	(7.84	)	$	(0.24	)

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended
	March 31, 2020			March 31, 2019
Net income (loss) attributable to Superior	$	(190,082	)	$	1,950
Other comprehensive income (loss), net of tax:
Foreign currency translation loss		(35,533	)		(7,349	)
Change in unrecognized gains (losses) on derivative instruments:
Change in fair value of derivatives		(58,426	)		6,414
Tax benefit (provision)		13,129			(1,488	)
Change in unrecognized gains (losses) on derivative instruments, net of tax		(45,297	)		4,926
Defined benefit pension plan:
Actuarial gains on pension obligations, net of curtailments and amortization		72			52
Tax (provision)		(17	)		(11	)
Pension changes, net of tax		55			41
Other comprehensive loss, net of tax		(80,775	)		(2,382	)
Comprehensive loss attributable to Superior	$	(270,857	)	$	(432	)

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	282,163		$	77,927
Accounts receivable, net		70,243			76,786
Inventories, net		169,864			168,470
Income taxes receivable		4,431			4,630
Other current assets		28,119			26,375
Total current assets		554,820			354,188
Property, plant and equipment, net		503,213			529,282
Deferred income tax assets, net		52,305			38,607
Goodwill		—			184,832
Intangibles, net		117,980			137,078
Other non-current assets		55,476			67,880
Total assets	$	1,283,794		$	1,311,867
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	138,774		$	123,112
Short-term debt		56,853			4,010
Accrued expenses		79,991			60,845
Income taxes payable		166			3,148
Total current liabilities		275,784			191,115
Long-term debt (less current portion)		752,991			611,025
Non-current income tax liabilities		7,058			6,523
Deferred income tax liabilities, net		8,041			12,369
Other non-current liabilities		99,988			71,640
Commitments and contingent liabilities (Note 17)		—			—
Mezzanine equity:
Preferred stock, $0.01 par value
Authorized - 1,000,000 shares
Issued and outstanding – 150,000 shares outstanding at March 31, 2020 and December 31, 2019		165,397			160,980
European non-controlling redeemable equity		2,225			6,525
Shareholders’ equity (deficit):
Common stock, $0.01 par value
Authorized - 100,000,000 shares
Issued and outstanding – 25,474,477 and 25,128,158 shares at March 31, 2020 and December 31, 2019		92,678			93,331
Accumulated other comprehensive loss		(180,853	)		(100,078	)
Retained earnings		60,485			258,437
Total shareholders’ equity (deficit)		(27,690	)		251,690
Total liabilities, mezzanine equity and shareholders’ equity (deficit)	$	1,283,794		$	1,311,867

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended
	March 31, 2020			March 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(190,082	)	$	1,950
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		24,392			23,331
Income tax, non-cash changes		(5,849	)		(1,719	)
Impairment of goodwill and indefinite-lived intangibles		193,641			—
Stock-based compensation		(653	)		504
Amortization of debt issuance costs		1,385			953
Other non-cash items		(3,600	)		2,291
Changes in operating assets and liabilities:
Accounts receivable		(423	)		(31,270	)
Inventories		(5,209	)		7,463
Other assets and liabilities		2,897			9,680
Accounts payable		16,904			5,287
Income taxes		(2,090	)		10,221
NET CASH PROVIDED BY OPERATING ACTIVITIES		31,313			28,691
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		(13,865	)		(13,392	)
Other investing activities		—			1,461
NET CASH USED IN INVESTING ACTIVITIES		(13,865	)		(11,931	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		11,690			—
Repayments of debt		(22,600	)		(1,000	)
Cash dividends paid		(3,392	)		(6,128	)
Purchase of non-controlling redeemable shares		(4,190	)		(1,411	)
Payments related to tax withholdings for stock-based compensation		—			(108	)
Proceeds from borrowings on revolving credit facility		213,825			25,000
Repayments of borrowings on revolving credit facility		(5,992	)		(25,000	)
Other financing activities		(292	)		—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		189,049			(8,647	)
Effect of exchange rate changes on cash		(2,261	)		(1,938	)
Net increase in cash and cash equivalents		204,236			6,175
Cash and cash equivalents at the beginning of the period		77,927			47,464
Cash and cash equivalents at the end of the period	$	282,163		$	53,639

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

(Unaudited)	Common Stock				Accumulated Other Comprehensive (Loss) Income
	Number of Shares		Amount		Unrecognized Gains (Losses) on Derivative Instruments			Pension Obligations			Cumulative Translation Adjustment			Retained Earnings			Total
BALANCE AT DECEMBER 31, 2018		25,019,237	$	87,723	$	(3,205	)	$	(3,000	)	$	(99,290	)	$	391,037		$	373,265
Consolidated net income		—		—		—			—			—			1,950			1,950
Change in unrecognized gains/losses on derivative instruments, net of tax		—		—		4,926			—			—			—			4,926
Change in employee benefit plans, net of taxes		—		—		—			41			—			—			41
Net foreign currency translation adjustment		—		—		—			—			(7,349	)		—			(7,349	)
Common stock issued, net of shares withheld for employee taxes		54,123		—		—			—			—			—			—
Stock-based compensation		—		396		—			—			—			—			396
Cash dividend declared ($0.09 per common share)		—		—		—			—			—			(2,323	)		(2,323	)
Redeemable preferred dividend and accretion		—		—		—			—			—			(7,771	)		(7,771	)
European non-controlling redeemable equity dividend		—		—		—			—			—			(121	)		(121	)
BALANCE AT MARCH 31, 2019		25,073,360	$	88,119	$	1,721		$	(2,959	)	$	(106,639	)	$	382,772		$	363,014

(Unaudited)	Common Stock					Accumulated Other Comprehensive (Loss) Income
	Number of Shares		Amount			Unrecognized Gains (Losses) on Derivative Instruments			Pension Obligations			Cumulative Translation Adjustment			Retained Earnings			Total
BALANCE AT DECEMBER 31, 2019		25,128,158	$	93,331		$	9,951		$	(5,571	)	$	(104,458	)	$	258,437		$	251,690
Consolidated net loss		—		—			—			—			—			(190,082	)		(190,082	)
Change in unrecognized gains/losses on derivative instruments, net of tax		—		—			(45,297	)		—			—			—			(45,297	)
Change in employee benefit plans, net of taxes		—		—			—			55			—			—			55
Net foreign currency translation adjustment		—		—			—			—			(35,533	)		—			(35,533	)
Common stock issued, net of shares withheld for employee taxes		346,319		—			—			—			—			—			—
Stock-based compensation		—		(653	)		—			—			—			—			(653	)
Redeemable preferred dividend and accretion		—		—			—			—			—			(7,850	)		(7,850	)
European non-controlling redeemable equity dividend		—		—			—			—			—			(20	)		(20	)
BALANCE AT MARCH 31, 2020		25,474,477	$	92,678		$	(35,346	)	$	(5,516	)	$	(139,991	)	$	60,485		$	(27,690	)

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

NOTE 1 – NATURE OF OPERATIONS AND PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Superior Industries International, Inc.’s (referred herein as the “Company,” “Superior,” or “we” and “our”) principal business is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (OEMs) in North America and Europe and aftermarket distributors in Europe. We employ approximately 8,400 employees, operating in eight manufacturing facilities in North America and Europe with a combined annual manufacturing capacity of approximately 20 million wheels. We are one of the largest suppliers to global OEMs and we believe we are the #1 European aluminum wheel aftermarket manufacturer and supplier. Our OEM aluminum wheels accounted for approximately 93 percent of our sales in the first quarter of 2020 and are primarily sold for factory installation on vehicle models manufactured by BMW (including Mini), Daimler AG Company (Mercedes-Benz, AMG, Smart), FCA, Ford, GM, Honda, Jaguar-Land Rover, Mazda, Mitsubishi, Nissan, PSA, Renault, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, SEAT, Skoda, Porsche, Bentley) and Volvo. We also sell aluminum wheels to the European aftermarket under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the principal markets for our products, but we have a global presence and diversified customer base consisting of North American, European and Asian OEMs. We have determined that our North American and European operations should be treated as separate reporting segments as further described in Note 5, “Business Segments.”

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the SEC’s requirements for quarterly reports on Form 10-Q and U.S. Generally Accepted Accounting Principles (“GAAP”) and, in our opinion, contain all adjustments, of a normal and recurring nature, which are necessary for fair presentation of (i) the condensed consolidated statements of income (loss) for the three-month periods ended March 31, 2020 and March 31, 2019, (ii) the condensed consolidated statements of comprehensive income (loss) for the three-month periods ended March 31, 2020 and March 31, 2019, (iii) the condensed consolidated balance sheets at March 31, 2020 and December 31, 2019, (iv) the condensed consolidated statements of cash flows for the three-month periods ended March 31, 2020 and March 31, 2019, and (v) the condensed consolidated statements of shareholders’ equity (deficit) for the three-month periods ended March 31, 2020 and March 31, 2019. This Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes thereto filed with the Securities and Exchange Commission (“SEC”) in our 2019 Annual Report on Form 10-K.

Interim financial reporting standards require us to make estimates that are based on assumptions regarding the outcome of future events and circumstances not known at that time, including the use of estimated effective tax rates. Inevitably, some assumptions will not materialize, unanticipated events or circumstances may occur which vary from those estimates and such variations may significantly affect our future results. Additionally, interim results may not be indicative of our results for future interim periods or our annual results.

Certain prior year amounts have been reclassified to conform with the current year presentation.

Cash paid for interest was $6.0 million and $6.6 million for the three months ended March 31, 2020 and March 31, 2019, respectively. Net cash income taxes paid (refunded) was $4.4 million and $(1.6) million for the three months ended March 31, 2020 and March 31, 2019, respectively. As of March 31, 2020 and 2019, $4.1 million and $9.0 million, respectively, of equipment had been purchased but not yet paid and was included in accounts payable in our condensed consolidated balance sheets.

Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement.” Effective January 1, 2020, the Company adopted ASU 2018-13 which allows companies to remove, modify and add certain disclosures related to fair value measurements. The adoption of this standard did not have a significant impact on the Company’s condensed consolidated financial statement disclosures.

ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), which requires entities to use a new impairment model based on current expected credit losses (“CECL”) rather than incurred losses. Under CECL, estimated credit losses would incorporate relevant information about past events, current conditions and reasonable and supportable forecasts and any expected credit losses would be recognized at the time of sale. As a smaller reporting company (as defined under SEC regulations), the Company is not required to adopt the new standard until fiscal years beginning after December 31, 2022. We are evaluating the impact this new standard will have on our financial statements and disclosures.

ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans.” In August 2018, the FASB issued an ASU entitled “Compensation - Retirement Benefits - Defined Benefit Plans - General Subtopic 715-20 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (ASU 2018-14), which is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. We are evaluating the impact this new standard will have on our financial statement disclosures.

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In March 2020, the FASB issued ASU 2020-04 entitled “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The relief provided by this guidance is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform initiatives being undertaken in an effort to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The optional amendments of this guidance are effective for all entities upon adoption. We are currently assessing the impact of this update on our consolidated financial statements.

In accordance with ASC 606, “Revenue from Contracts with Customers,” the Company disaggregates revenue from contracts with customers into our operating segments, North America and Europe. Revenues by segment for the three months ended March 31, 2020 and 2019 are summarized in Note 5, “Business Segments.”

The Company’s customer receivables and current and long-term contract liabilities balances as of March 31, 2020 and December 31, 2019 are as follows (in thousands):

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, while other assets and liabilities are measured at fair value on a nonrecurring basis, such as when we have an asset impairment. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short period of time until maturity.

Cash and cash equivalents generally consist of cash, certificates of deposit and fixed deposits and money market funds with original maturities of three months or less.

Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. We estimate the fair value of these instruments using industry-standard valuation models such as discounted cash flow. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates, commodity prices and the contractual terms of the derivative instruments. The discount rate used is the relevant interbank deposit rate (e.g., LIBOR) plus an adjustment for non-performance risk. In certain cases, market data may not be available and we may use broker quotes and models to determine fair value. This includes situations where there is lack of liquidity for a particular currency or commodity or when the instrument is longer dated.

The following tables categorize items measured at fair value at March 31, 2020 and December 31, 2019:

			Fair Value Measurement at Reporting Date Using
March 31, 2020			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Assets
Money market fund investment	$	175,019	$	175,019	$	—	$	—
Derivative contracts		5,833		—		5,833		—
Total		180,852		175,019		5,833		—
Liabilities					.
Derivative contracts		61,705		—		61,705		—
Total	$	61,705	$	—	$	61,705	$	—

			Fair Value Measurement at Reporting Date Using
December 31, 2019			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Assets
Derivative contracts	$	21,973	$	—	$	21,973	$	—
Total		21,973		—		21,973		—
Liabilities
Derivative contracts		8,709		—		8,709		—
Total	$	8,709	$	—	$	8,709	$	—

The carrying values of the Company’s debt instruments vary from their fair values. The fair values were determined by reference to transacted prices of these securities (Level 2 input based on the U.S. GAAP fair value hierarchy). The estimated fair value, as well as the carrying value, of the Company’s debt instruments are shown below:

We use derivatives to partially offset our exposure to foreign currency, interest rate, aluminum and other commodity price risk. We may enter into forward contracts, option contracts, swaps, collars or other derivative instruments to offset some of the risk on expected future cash flows and on certain existing assets and liabilities. However, we may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange rates, interest rates, and aluminum or other commodity prices.

To help protect gross margins from fluctuations in foreign currency exchange rates, certain of our subsidiaries, whose functional currency is the U.S. dollar or the Euro, hedge a portion of their forecasted foreign currency costs denominated in the Mexican Peso and Polish Zloty, respectively. We may hedge portions of our forecasted foreign currency exposure up to 48 months.

We record all derivatives in the condensed consolidated balance sheets at fair value. Our accounting treatment for these instruments is based on the hedge designation. Gains or losses on cash flow hedges that are designated as hedging instruments are recorded in accumulated other comprehensive income (loss) (“AOCI”) until the hedged item is recognized in earnings, at which point accumulated gains or losses will be recognized in earnings and classified with the underlying hedged transaction. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. The Company has derivatives that are designated as hedging instruments as well as derivatives that do not qualify for designation as hedging instruments.

The following tables display the fair value of derivatives by balance sheet line item at March 31, 2020 and December 31, 2019:

	March 31, 2020
	Other Current Assets		Other Non-current Assets		Accrued Liabilities		Other Non-current Liabilities
(Dollars in thousands)
Foreign exchange forward contracts designated as hedging instruments	$	2,005	$	178	$	11,923	$	27,995
Foreign exchange forward contracts not designated as hedging instruments		3,313		—		7,979		—
Aluminum forward contracts designated as hedging instruments		—		—		1,225		—
Natural gas forward contracts designated as hedging instruments		142		195		615		403
Interest rate swap contracts designated as hedging instruments		—		—		4,784		6,781
Total derivative financial instruments	$	5,460	$	373	$	26,526	$	35,179

	December 31, 2019
	Other Current Assets		Other Non-current Assets		Accrued Liabilities		Other Non-current Liabilities
(Dollars in thousands)
Foreign exchange forward contracts designated as hedging instruments	$	7,808	$	12,821	$	60	$	100
Foreign exchange forward contracts not designated as hedging instruments		1,196		—		554		—
Aluminum forward contracts designated as hedging instruments		60		—		127		—
Natural gas forward contracts designated as hedging instruments		81		7		1,312		727
Interest rate swap contracts designated as hedging instruments		—		—		2,304		3,525
Total derivative financial instruments	$	9,145	$	12,828	$	4,357	$	4,352

Delaware	95-2594729
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

26600 Telegraph Road, Suite 400
Southfield, Michigan	48033
(Address of Principal Executive Offices)	(Zip Code)


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SUP	New York Stock Exchange

					Page
PART I	-	FINANCIAL INFORMATION

		Item 1	-	Financial Statements (Unaudited)

				Condensed Consolidated Income Statements	1

				Condensed Consolidated Statements of Comprehensive Income	2

				Condensed Consolidated Balance Sheets	3

				Condensed Consolidated Statements of Cash Flows	4

				Condensed Consolidated Statements of Shareholders’ Equity	5

				Notes to Condensed Consolidated Financial Statements	6

		Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

		Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	36

		Item 4	-	Controls and Procedures	36

PART II	-	OTHER INFORMATION			37

		Item 1	-	Legal Proceedings	37

		Item 1A	-	Risk Factors	37

		Item 2	-	Unregistered Sales of Equity Securities and Use of Proceeds	38

		Item 5	-	Other Information	38

		Item 6	-	Exhibits	39

		Signatures			40

	March 31, 2020		December 31, 2019
Customer receivables	$	64,455	$	68,283
Contract liabilities—current		8,073		5,880
Contract liabilities—noncurrent		11,776		13,577

	March 31, 2020		December 31, 2019
(Dollars in thousands)
Estimated aggregate fair value	$	674,318	$	606,093
Aggregate carrying value ⁽¹⁾		824,060		630,635

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐	Smaller Reporting Company	☒
		Emerging Growth Company	☐